Ban on Swatch Group selling ETA movements comes a step closer

Last week the Swiss Competition Commission (Weka) announced that it is preparing to ban Swatch Group from selling ETA movements to third parties in 2020.

This is just the latest turn in a saga that dates back to 2002, when Swatch Group first threatened to stop selling ebauches to third parties, says Tony Traina, a lawyer and writer at Rescapement, a new publication and newsletter about the watch industry.

Back then, Swatch Group thought it untenable that it was supplying movement components to brands that competed with some of Swatch’s own brands like Omega, Tissot and Hamilton.

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The dispute dragged on for years, when, in 2013 the parties finally reached an agreement whereby Swatch could gradually decrease the number of ETA movements it sold to third parties through 2019. Then, in 2020, Swatch Group would be free to sell (or not sell) its movements to whomever it pleased.

Well, it seems things haven’t gone quite according to plan. See, both Swatch and its competitors were supposed to benefit from that 2013 deal: come 2020, Swatch would finally be able to operate freely in the market again without having to manufacture a government-directed number of movements for other watch brands. Meanwhile, Weka thought that gradually reducing ETA’s dominance in the movement market would allow competitors to come in and create a more competitive landscape.

According to reports though, Weka commissioned a study of the market landscape last year to see if the plan had worked. While not public (yet), it seems as though the findings of this report are what prompted Weka’s ETA ban. In other words, ETA’s position is still likely too dominant and Weka feels there’s not enough competition in the supply of Swiss movements. Hence the 2020 ban.

This is a complex situation: there are many moving pieces and the results of the forthcoming ban will be felt across the watch industry for years to come, not to mention the domestic Swiss politics and economic considerations at play. It sounds as though Weka is prioritising the long-term health of the movement supply business over its short-term prospects.

With ETA blocked from supplying movements in 2020, the supply crunch that have left brands like Ming scrambling and unable to meet customer demand is likely to continue. But, the long-term hope is that movement suppliers like Sellita and Soprod will fill the vacuum left by ETA’s absence.

To be sure, smaller brands like Ming with less resources stand to lose the most in the meantime. Larger brands that have relied on ETA movements may fair better by continuing to shift to their own in-house production or finding partnerships to build the economies of scale still needed to manufacture low-cost mechanical movements at scale — Tudor and Breitling stand as examples here.

Add to that factors outside of Switzerland’s control, and it becomes clear how the decision could impact the watch industry as a whole. For example, as I commonly cover in monthly reports on Swiss export numbers, the low end of the watch market (often powered by movements from ETA) continues to decline as customers flock to smart watches. Meanwhile, Citizen’s Miyota continues to produce cheaper mechanical movements that are increasingly recognized and respected among consumers, even though they lack the vaunted “Swiss Made” labelling.

This is also emblematic of a larger issue in our modern economy: in many industries, power is concentrated with a few monopolistic companies. There are many causes, but technology is one of the most important. Large companies build the technology platforms, then smaller ones leverage these platforms to carve out niches of whatever’s left.

For example, a generation prior, it would have been difficult for a company like Ming, with a shoestring budget and no manufacturing capability to gain an international following and win a prestigious award after just a few years in business. But, combine a cool design, some social media marketing, and watch forum momentum, and the result is a brand selling out its latest model in two minutes. And this isn’t to knock Ming — I love their watches and the 17.06 Slate is one of the best looking yet.

But, let’s not forget that the escapement ticking inside that is built by a monopolistic Swiss conglomerate with designs on pulling the rug out from under companies like Ming.

Likewise, this isn’t to knock Swatch. They’ve dedicated years of research and development, as well as the capital to manufacture these movements, and are now being “forced” to sell them to competitors. Oh by the way, Swatch subsidiary Nivarox is required to continue supplying its hair springs to third parties until 2023, and it’s got an even bigger monopoly there than it does on the fully-assembled ETA movements causing the current kerfuffle.

About the author: Tony Traina is a writer at Rescapement, a publication and newsletter dedicated to the watch industry.

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